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The idea of budgeting can be a polarizing thing.
A lot of people are put off by it because of preconceived notions and confusion about how to best go about it.
If you had mentioned the word ‘budget’ to me a few years back, I probably would have looked at you strangely and dismissed it. Because, hello, who really wants to sit down and do the tedious task of looking over your spending.
Thankfully, budgeting doesn’t have to be some tedious mind destroyer if you don’t want it to. It can actually be pretty fun to do. It’s all about picking the right system and tools that work best for you.
My first foray into budgeting came when I was 18 and in my first year of college. I was working a lowly food prep position at McDonald’s and trying to figure how my money kept vanishing into thin air.
So, I downloaded the free budgeting tool Mint and got to work tracking my spending within the service. Suddenly for the first time, I was able to monitor my transactions while making goals and assigning set amounts to different spending categories.
It was kind of like a game of sorts. Being able to see how savvy I could get by staying within my set amounts for spending categories. The most prominent one being the food and groceries category, because let’s be honest, that one was a chaotic mess of late night drive-throughs, takeaway coffee, and one too many pizza deliveries.
Mint was cool but over the years, I started to want something more. To see what else was out there. Through some trial and error, I started to find my groove with budgeting.
So far, its led to hitting some pretty sweet financial goals. I was able to ditch a blue collar job I hated, move abroad for a year and a half, pay off $21,000 in student loans within 18 months, and build up a good-sized emergency fund.
If you’re ready to get organized with your money and better work toward your goals then keep reading. Here’s a step by step guide to budgeting.
Start Tracking Your Spending
Do you know where you’re money is going every month? Not in the vague “oh well I think I spent around this much on entertainment…” but in the “I spent this exact amount on entertainment last month”.
It’s easier for your money to feel like it just disappears when you’re not actively tracking it. $11 here, $18 there. It doesn’t feel like much until you add it all up.
Tracking your spending combats that. It makes you more conscious of spending decisions so you can prioritize better on what matters most to you. And hey, maybe that priority involves buying concert tickets or getting a dog. It’s all up to you!
Everyone has different priorities but tracking one’s spending is helpful to everyone.
There are a few ways to do it. You could use an Excel or Google Sheets spreadsheet and input it manually. For online options, a free tool like Personal Capital lets you track your spending as well as monitor your overall financial picture.
Figure Out What Motivates You
You can’t start budgeting if you’re not sure what your motivations are. A lot of people falter with budgeting because they don’t have a clear reason why they’re doing it.
Think back to some big achievements you’ve done (maybe it was getting a dream job, hitting a fitness goal, or saving up for something) You probably had a strong reason why. Channel that same inner grit into your financial goals. You’ll have a much better shot at sticking to your budget this way.
Figuring this out can take some time (i.e. it’s not something you can sit down and do within a half hour). Think about your ‘why’ during moments when you’re getting ready for bed, taking a shower, or other idle moments.
To help you stay motivated, employ some of the tips below:
- Figure out a plan for what to do when temptation arises
- Enlist friends help by telling them your motivations
- Use visual reminders (whiteboards are good for this!)
- Surround Yourself with disciplined people (personal finance facebook groups can be great for this!)
Create Financial Goals
The main purposes of a budget are to help you become mindful of your spending as well as helping you reach your financial goals in a more organized and strategic manner.
No more wingin’ it and hoping for the best. The stuff that gets measured gets improved.
Think about what financial goals you want to accomplish. These could include:
- Getting a new (to you) car
- Automating your finances
- Save for retirement
- Earning more money
- Paying off debt
- Saving for a vacation
These are typical goals that people often have in common. Don’t forget to think about other goals you may have. These could include saving up for a new computer, education expenses, a new phone you want, books, or any number of things.
Think of both short-term and long-term goals you would like to hit. Make sure to look at what you value as you commit to your financial goals.
If you’re a movie buff who loves going to the cinema every week to see the latest, then cutting out going to the movies isn’t going to go over well. Cut back in other areas and brainstorm ways to do things cheaper. If you like to eat out a lot then download an app like MealPrepPro. Use something like MoviePass if you see a lot of movies.
Get small and specific with the goal. For example, saving for retirement is boring. Saving for retirement so you won’t have to live on $1,200 a month and eat beans and rice for every meal is better. You feel me? Good.
Studies show that setting small goals and checking them off motivates us to accomplish those big hairy audacious goals (BHAG) like paying off student loans or saving for something big.
- Why exactly do I want to achieve this goal?
- How will my life look differently by achieving this goal?
Select a budget system
Envelope method: Revolves around using cash only. You withdraw the amount of money you need for the month, put it in envelopes, and then once the money inside the envelope is gone, that’s it. You have to wait until the next month starts before spending in that category again.
Zero Sum budget: You give every dollar a job. Your budget should be zero at the end of the month. This budgeting style can help if you have a habit of mindlessly spending money on things once you pay all of your expenses.
The awesome book, Zero Down Your Debt goes more into this. The authors used this budgeting method to help them get out of $50,000 of debt and go on to work for themselves.
50-20-30 budget: A percentage based system where 50% goes to your needs, 20% goes to your savings and debt repayments, and 30% goes to your wants.
Category budget: You assign amounts to different categories and aim to keep spending under that amount.
Choose your tools
I’ve used a selection of different tools in my budgeting journey. As I mentioned at the start of this post, I started using Mint when I was 18 and in my first year of college. For simplicity, pen and paper have also been used.
The pen and paper method didn’t work for me too well since it was completely manual. Sometimes life would get busy and I would totally forget to write down my spending. Using an online service like Mint really helped keep me on track. Currently, I’m on a free trial of You Need a Budget (YNAB) and seeing how I like it. Testing things out for the win! 🙂
Below are some different tools you can use to budget.
Pen and paper: Simplicity sometimes beats the rest. If you like writing out your expenses by hand and keeping track of spending and receipts, then you could just use a simple pen and paper or write in a notebook to budget.
Excel spreadsheet: Spreadsheets really make some people jump for joy. They can be pretty great since you’re able to input your spending and have it push it to the appropriate category and total everything for you.
You need to have Microsoft Office installed on your computer. Alternatively, some budget spreadsheets also work in Google Sheets (the free excel alternative).
Mint: Mint is that popular budgeting tool you’ve probably heard about countless times, but never really learned more about. Lots of people use it because it’s a free cloud-based service (rather than remember where you put your excel spreadsheet on your computer.) that is simple to use and categorizes your spending.
You connect your bank account and set goals for your finances. Sign up for a free account.
YNAB: You Need a Budget is similar to Mint, but it employs the specific approach of building a zero-sum budget and giving every dollar a job. It allows you to set goals, track your progress, see your spending trends over the long term and teaches you to live on your income from the last month. You budget based on what you have already earned.
It’s a paid tool that costs $6.99/month. A free 34-day trial is offered. Judging by some Reddit threads and online comments, a lot of people swear by YNAB and its many benefits compared to Mint. Sign up here.
Personal Capital: This free financial planning tool allows you to budget and also monitor your net worth. You can get a full picture of your financial life by syncing your bank accounts along with your investment accounts and any assets or liabilities you have.
Sign up for a free account and get started with monitoring your spending, savings rate, and being able to monitor your overall net worth.
Whew! A lot to go through to build a budget. It’s all worth it though. Going through the steps listed and you’ll be well on your way to building a budget that works for you.
Budgeting isn’t about restricting yourself. It’s about giving your money a plan. As with a lot of things in life, budgeting doesn’t come without making a few mistakes here and there. Use this step by step budgeting guide and experiment based what works for you.
Forgive yourself, break down your goals, and create some daily actions. It’s how you get successful with budgeting. Let me know how it goes!
How did you get started budgeting? What tactics and tools worked best for you?